Download Economic Insight The Market is Full of Sound and Fury

Ballard Associates Q3
Economic
Insight
The Market is Full of Sound and Fury; Signifying Nothing but Normalcy
There are many headlines that the media may use to cause investors to focus on what’s wrong
with the market. This leads to portfolio withdrawals during volatile markets. Withdrawing on
the downside exacerbates the downside impact, meaning you would need additional gains on
the upside to recover. Volatility works both ways and 2014 offers a good example: “From
September 19 – October 17, the market fell about 7%, but by Halloween it had reversed course
and jumped 7%. The same percentage move but in half the time.” (Zacks Investment
Management, 15’) In this particular example, investors that sold stock or withdrew funds for
fear of further downside volatility ran the risk of getting “whipsawed”, or in other words, would
need additional gains on the upside to recover.
Figure 1 S&P 500 09'-15'(Zacks Investment Management, 15) 'Indices mentioned are unmanaged and cannot be invested into
directly'.
The above data shows the markets last 6 years and the periods of drastic volatility are circled in red.
Instances of sharp downturn have occurred each year while the bull market pressed on.
Retirees are not unfamiliar with these volatile market conditions. It’s a very normal feature of
every bull market cycle to date. So what do we do in this situation? If your financial situation
allows for it, it makes sense to reduce withdrawals during periods experiencing downside
volatility. This may allow an advantage on the potential upside.
The chart below shows the market pullback corresponding to the market finish. This shows the impact
that withdrawals or sell offs would have on recovering potential gains on the upside.
Whether you have been investing for decades or days, the experience of downside volatility is
always a tense moment, further amplified if you are at or nearing retirement. Your nest egg is
on the line, concern and worry are normal features of the human condition, just as the cause of
your stress is a normal feature of the market. To ease this uncertainty, we’d encourage you to
mind the data first, because more often than not, the volatility will be short-lived and the
market will climb the investor’s wall of worry.
Securities Offered Through Representatives of Cambridge Investment Research, Inc., a Broker/Dealer
Member FINRA & SIPC. Investment Advisory Services Offered Through Cambridge Investment Research
Advisors, Inc. a Registered Investment Advisor. Ballard Associates is not affiliated with Cambridge
Investment Research, Inc.
6944 I C30201 I 12/2014